REITs Outperform S&P 500 for Fourth Straight Year

Although the housing market continues to struggle, commercial property once again outperforms.

By John Sullivan|January 08, 2013 at 07:08 AM

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Yield seekers, pay attention.

Although the housing market continues to struggle, commercial property once again outperforms, as REIT stocks bested the broader equity market for the fourth consecutive year in 2012, according to the National Association of Real Estate Investment Trusts (NAREIT). The FTSE NAREIT All REITs Index, which includes both equity and mortgage REITs, delivered a 20.14% total return for the year, and the FTSE NAREIT All Equity REITs Index returned 19.70%.

This compared with a 16% gain for the S&P 500.

The REITs Index’s 2012 gain came on top of total returns of 8.28% in 2011, 27.95% in 2010 and 27.99% in 2009. The S&P 500 returned 2.11%, 15.06% and 26.46%, respectively, in those years.

Almost all sectors of the REIT market delivered double-digit returns for the year, the organization reports. Among equity REITs, the top-performing sectors in 2012 were

Timber, with a 37.05% total return;

Industrial, with a 31.28% total return;

Infrastructure, with a 29.91% return;

The retail sector, which delivered a 26.74% total return, led by the regional mall segment’s 28.21% return; and

The health care sector returned 20.35% for the year, and self-storage achieved a 19.94% return.

The FTSE NAREIT Mortgage REITs Index provided a 19.89% total return for 2012. The commercial financing sector’s total return was 42.98%, and the home financing sector returned 16.38%.

REITs are required to pay out nearly all of their taxable income to shareholders as dividends annually, typically resulting in significant dividend yields for the stocks. The dividend yield of the FTSE NAREIT All REITs Index was 4.38% on Dec. 31, and the dividend yield of the FTSE NAREIT All Equity REITs Index was 3.51%.

“REITs have a strong track record of delivering income,” NAREIT President and CEO Steven Wechsler said in a statement. “It is an attribute that has become increasingly important in our continuing low-interest-rate environment, especially for those who are preparing for or are in their retirement years.”

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